OECD Ratifies Global 15% Digital Tax Rate, Aims For 2023 Implementation
The OECD finalized an earlier agreement that would impose a 15% tax on companies operating in 136 member nations.
WASHINGTON, October 11, 2021 – The Organization for Economic Cooperation and Development on Friday finalized an agreement to levy a 15 percent tax rate on digital multinational businesses, like Amazon, Apple, Google, and Facebook, starting in 2023.
The ratification of the tax rate comes after years of negotiations and after individual countries have proposed their own tax systems to keep up with internet businesses that have long skirted the tax of laws of nations they operate in because they don’t necessarily have a physical connection inside those borders. The Liberal Party in Canada, for example, had proposed a 3 percent tax on revenues obtained inside the country, while Britain, France, Italy, and Spain had been contemplating digital sales taxes on their own.
The 15 percent tax rate has been signed by 136 member nations, all OECD and G20 countries, out of 140 states (Kenya, Nigeria, Sri Lanka, and Pakistan did not join) and finalizes a July political agreement to reform international tax rules. The United States had proposed the 15 percent global corporate tax rate earlier this year.
Hungary and Ireland, the latter of which is a corporate tax haven for companies like Apple and Google, were two of the last holdouts. Hungary agreed to join Friday after they were guaranteed a ten-year rollout period for the regulation, and Ireland agreed Thursday after guarantees that the rate would not be subsequently increased.
The new tax rate is expected to generate US $150 billion annually for the countries involved and targets companies with revenues of over 750 million Euros. “The global minimum tax agreement does not seek to eliminate tax competition, but puts multilaterally agreed limitations on it,” the OECD said, adding the tax will not only stabilize the international tax system but also provide companies with more certainty as to their obligations.
The regulation would be the first foundational cross-border corporate tax rate regulatory change in over a century. Some are skeptical of President Joe Biden’s and Congress’s ability to ratify the agreement. The OECD hopes to sign a multilateral convention by 2022 and implement the reform by 2023.
The final agreement will be delivered to the G20 finance ministers meeting in Washington D.C. on Wednesday, then it will be charted off to the G20 Leaders’ Summit in Rome at the end of this month, according to a OECD press release.
The United States was in a bit of a defensive pattern under former President Donald Trump, after the country made tariff threats if the European nations, particularly France, decided to tax its big homegrown corporations.
French Finance Minister Bruno Le Maire said that the agreement, “opens the path to a true fiscal revolution.” US Treasury Secretary Janet Yellen said that the OECD has “decided to end the race to the bottom on corporate taxation,” referring to the practice of attracting large companies to headquarter in one’s country through purposefully incentivized lower tax rates.
